Please note that square brackets indicate figures or text which have
been deleted or replaced with a range at the request of the parties for
reasons of commercial confidentiality.

PARTIES

The Carphone Warehouse Group plc (CPW) provides fixed and mobile retail
telecommunications services and internet access services to residential
and business customers. At the wholesale level, it operates a fixed
telecommunications network through its wholly owned subsidiary, Opal
Telecom Limited (Opal). In addition, it is the largest independent
retailer of mobile communications in Europe with over 1,500 stores in10
countries.

Centrica Telecommunications Limited, Onetel Limited, Telco Holdings
Limited, and Awardmodel Limited, (together Onetel) provides fixed and
mobile telecommunications services and internet access services to both
residential and business users. Its UK turnover for the year ending 31
December 2004 was £285 million.

TRANSACTION

On 19 December 2005, CPW announced it had agreed to acquire Onetel.
Completion took place on 30 December 2005 (see [Note 1]).

The OFT administrative timetable expires on the 10 May 2006. The
statutory deadline is 11 May 2006.

JURISDICTION

As a result of this transaction CPW and Onetel have ceased to be
distinct. The UK turnover of Onetel exceeds £70 million, so the
turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act)
is met. The OFT therefore believes that it is or may be the case that a
relevant merger situation has been created.

RELEVANT MARKET

Product scope

The parties overlap in the provision of fixed retail telecommunications
services to residential and business customers, as well as narrowband
and broadband internet access and mobile telecommunications services.

The European Commission defined a series of specific retail and
wholesale electronic communications markets in the Commission
Recommendation on relevant product and service markets within the
electronic communications sector (see [Note 2]). These have been
reviewed and to some extent revised by OFCOM in a series of market
reviews carried out in 2003 (see [Note 3]).

In view of its expertise in relation to the UK telecommunications sector
and the fact that it has conducted detailed market analyses so recently,
the OFT has adopted as its starting point for a product frame of
reference the approach to market definition taken by Ofcom in its market
reviews.

The parties overlap in a number of areas but, on the basis of shares of
supply and third party comment, there is only one area where there were
preliminary competition issues meriting closer consideration: fixed
telecommunications services at retail level. In narrowband and broadband
internet access and mobile telecommunications services, irrespective of
the frame of reference used, the parties shares were less than 3 per
cent (increment less than 1 per cent).

As regards fixed telecommunications services to residential and business
customers, the OFT has broadly looked at segments of retail residential
exchange lines, retail business exchange lines, retail residential calls
and retail business calls, using data presented by Ofcom (see [Note 4])
and the parties. These could be further segmented into
different types of calls including: local, national, international,
calls to mobiles and assisted calls.

The parties provide retail fixed telecommunications services to
residential and business customers via the use of Carrier Pre-Selection
(CPS) (to offer calls) or Wholesale Line Rental (WLR) (to offer line
rental). The parties are able to offer such retail fixed
telecommunications services by purchasing CPS and/or WLR from wholesale
suppliers.

CPS and WLR are wholesale products introduced by Ofcom in order to
promote competition in the provision of fixed retail call services. CPS
services enable a customer connected to a BT line to obtain its calls
from another telecommunications operator without having to dial a prefix
or install any special equipment at their premises. WLR allows a WLR
provider to sell line rental directly to residential or business
customers using an existing BT line. An end-customer can purchase
separately calls from one provider and line rental from the same or a
different provider.

The OFT considered whether new technologies such as Voice over Internet
Protocol (VoIP) yet represent a significant competitive constraint on
fixed telecommunications services. Services using VoIP provide voice
calls and messaging services over a broadband connection rather than
over traditional telephone networks (see [Note 5]). The evidence
the OFT has found shows that these services are still in their infancy,
relative to established technology (see [Note 6]). Therefore,
the relevant frame of reference in respect of fixed telecommunications
services for the purposes of this case excludes VoIP at retail level.

The OFT also considered the extent to which fixed and mobile
telecommunications services were substitutes. The parties, a third party
and OFCOM were of the view that that although there was an increasing
convergence between fixed and mobile telephony, they were insufficiently
close substitutes for them to fall within the same frame of reference. A
third party challenged this statement but did not present any evidence
(see [Note 7]).

However, as regards fixed telecommunication services, the OFT considers
that it is not necessary to reach a final view on the scope of any
relevant frame of reference because even on a narrow basis no
competition issues arise.

Geographic scope

The role of regulation in the telecommunications sector (as well as the
fact that the pricing policies of telecommunications providers is
predominantly national) suggests a frame of reference that is national
in scope and the OFT has received no convincing evidence to suggest that
a different geographic frame of reference would be more appropriate in
relation to any of the product segments identified above.

HORIZONTAL ISSUES

In terms of fixed telecommunications services, whichever frame of
reference is adopted, the parties’ combined shares do not exceed
[10-20] per cent in any segment bar residential international calls.
Here the estimated combined share of supply is about 25 per cent with an
increment of around 5 per cent. In all segments, the parties will
continue to compete with the market leader BT; the cable companies (in
those areas where they are active); and several other smaller
competitors, such as Toucan, the Post Office or Homecall. Post-merger
these rivals will continue to confer sufficient competitive constraint
on the merged company.

Although most third parties were unconcerned by the merger, three
residential customers were concerned that this merger (together with the
earlier acquisition of Tele2) (see [Note 1]) removed CPW’s main
competitive constraints for fixed telecommunications services and would
allow CPW to increase prices or reduce quality post-merger. The OFT has
assessed this theory of harm by, among other means, considering
historical comparative pricing data to see the extent to which the
parties tracked each others’ pricing decisions and what rivals were
offering. Although the parties might have exerted some competitive
constraint on each other, there are several other competitors, some of
which offer lower prices across a range of different call types and line
rental. These remaining competitors are therefore considered by the OFT
to be a sufficient competitive constraint on the parties post-merger.

Although not raised by any third party, the OFT also considered whether
bundling concerns arise as a result of the merger. Increasingly
telecommunication providers are offering a bundle of products such as
‘triple play’, or soon to be expected ‘quadruple play’ (see [Note 8]).
The parties to this merger can offer fixed and mobile
telecommunication services as well as broadband internet access in a
bundled package. However, there are several companies, including
BSkyB/Easynet, BT and NTL/Telewest/Virgin offering or in a position to
offer similar bundled packages. Consequently, the OFT does not believe
that this issue gives rise to any concerns.

VERTICAL ISSUES

The merger does not give rise to substantial vertical issues.

THIRD PARTY VIEWS

Third parties, including Ofcom, were generally unconcerned. Three
residential customers were concerned that the acquisition of Onetel (and
Tele2) (see [Note 1]) could give rise to horizontal
anticompetitive effects. This has been addressed in the section on
horizontal issues above.

ASSESSMENT

The parties overlap in the provision of fixed retail telecommunications
services to residential and business customers, as well as narrowband
and broadband internet access and mobile telecommunications services.

In narrowband and broadband internet access and mobile
telecommunications services the parties combined shares do not exceed 3
per cent. As regards fixed telecommunications services, however the
frame of reference is defined, the parties' combined share of supply
does not exceed [10-20] per cent in any one segment except for
residential international calls (about 25 per cent, with an increment of
about 5 per cent). In all fixed telecommunication services, which is
the only area where any third parties raised concerns, the merged entity
will continue to face a number of competitors. BT (the market leader),
the cable companies and several other smaller competitors will continue
to be a sufficient competitive constraint on the merged company.

Consequently, the OFT does not believe that it is or may the case that
the merger may be expected to result in a substantial lessening of
competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.

NOTES

1. On 19 December 2005, CPW announced it had also acquired Tele2 (UK),
another fixed line telecommunications provider. The OFT assessed this
transaction separately and concluded by that the transaction did not
qualify as a relevant merger situation under the Enterprise Act
2002. This assessment takes into account CPW's position after having
integrated Tele2.

2. OJ [2003] L114/45.

3. See .

4. See Ofcom Telecommunications Q3 2005, February 2006.

5. See further on .

6. See for example Ofcom Retail Price Control (consultation paper) of
21 March 2006, page 19.

7. This issue is discussed at more length in the of 8 May 2006 with
respect to the anticipated acquisition by NTL Incorporated of Virgin
Mobile Holdings (UK) Limited.

8. 'Triple play' is the provision of fixed telecommunications,
internet and multi-channel TV to a customer by the same supplier as a
bundled service. 'Quadruple play' adds mobile telecommunications.
'Quadruple play' is not yet available, but is expected to be available
in the forthcoming future.

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